Economy

The Securities and Exchange Commission has been firing off letters to some of the largest companies in the US demanding that they give investors more information on how inflation is affecting their business.Staff at the regulator have become concerned that some companies’ financial reports gloss over the impact of rising prices on profits and liquidity.The SEC is using its “filing review process” to extract more details that investors can use to judge how companies are responding to inflation that recently hit a 40-year high.The shipping group FedEx and the retailer Costco are among the companies whose public filings attracted a letter from the SEC demanding that they expand their disclosures.Sarah Lowe, deputy chief accountant in the SEC’s office of corporation finance, told a conference for finance executives last week that companies needed to do more than simply say inflation was affecting their business.“Instead we are asking that you should explain how it has affected results of operations, sales, profits, capital expenditures or maintenance you may do,” she told the event organised by Financial Executives International. Filings should also discuss how business goals and pricing strategies were changing as a result, she said.“Are you forced to pass along your increased costs to customers or do you just absorb those losses? Are you negotiating with customers about price changes and is there uncertainty about how those talks will resolve?”Companies must respond in writing to the SEC’s sometimes pointed comments, and are expected to follow the regulator’s demands in future filings.FedEx told investors that inflation was negatively affecting its operating results this year, but the SEC wrote in a letter in September that it should add more on the specific factors behind its rising costs, and what it was doing to limit the impact.SEC staff told the industrial giant Eastman Chemical in August to identify the “specific raw materials and energy commodities” where higher prices were hitting its results.In a letter to water technology group Xylem, they wrote: “You refer to mitigating inflation headwinds but it is unclear what specific actions you have taken.”And in a letter to Costco in April, SEC staff said they had heard executives discussing on quarterly earnings calls how the retailer was adjusting merchandising and pricing strategies in response to inflation. That kind of discussion should also be in the formal regulatory filings, they wrote.The SEC’s letters are made public, but only after an interval. The review process covers both the financial results of listed companies and fundraising prospectuses from companies planning to list.The SEC said earlier this year that it would use its filing review process to demand more information about how the war in Ukraine was affecting some companies, and to ask for extra disclosures about ongoing disruption to global supply chains.The addition of inflationary impacts to the list of demands reflects concern at the agency that many executives involved in the preparation of financial reports have never lived through a period of rising prices.Current economic conditions “might require some additional disclosure beyond what has historically been provided when entities were operating in a more steady-state economic environment,” the SEC’s acting chief accountant, Paul Munter, said in September. More

David Glaymon is a former partner at Kynikos Associates and financial analyst.The market vibes on the Federal Reserve’s inflation fight is looking more like a week-to-week battle dominated by the latest data and headlines. Last week, supporters of an interest rate “pivot” received a boost when Inflation unexpectedly rose less than expected. The week before it was the opposite, with a one-two punch delivered by Fed chair Jay Powell and a strong employment report.Watching this battle — with the Fed trying to fight inflation with its limited tools of interest rates and balance sheet management — the classic Japanese Godzilla movies come to mind. In those films, the legendary monster, played by a person in a rubber suit, tramped around a set crushing miniature buildings and vehicles. It may be entertaining, but it isn’t very believable.But nestled within the October employment report was some data that hinted that Ghidorah, Godzilla’s greatest foe, might be lurking over the hill. Manufacturing job creation has actually accelerated this year, with another 32,000 jobs generated in October. Here is the detailed breakdown from the BLS:

Manufacturing employment growth will probably remain strong for three reasons. And like Ghidorah’s three heads, these will complicate Godzilla-Powell’s inflation fight.The first head is ongoing direct fiscal stimulus from several major programs signed into law over the past year. These are fuelling corporate investment, despite the Fed’s rate increases ramping up the cost of capital. For example, only $840bn of last year’s $1.2tn Bipartisan Infrastructure Law has actually been appropriated by Congress so far, according to data analysed by Politico, and the majority of the actual spending is yet to come.The second head is investment triggered by Russia’s invasion of Ukraine. Soaring energy prices is like a vice tightening around the neck of European industrial companies, which are being forced to reduce production or even shutter plants. In the US, however, it is a different story, thanks at least partly to the US Inflation Reduction Act. While BASF’s recent decision to “permanently” downsize in Europe made waves, two months earlier the company announced a $780mn commitment to double production capacity at its chemical manufacturing complex in Louisiana. This is not an isolated incident. And then there is the third head — the shortening of supply chains, including due to rising geopolitical tensions with China.The $52bn CHIPS Act has spurred GlobalFoundries, Intel, Micron, Samsung Foundry, TSMC, Texas Instruments, and Wolfspeed to start building fabs in the US. The investments and the potential jobs are significant. On the other side of the manufacturing spectrum, Nutella owner Fererro Group last week broke ground on a new $214mn Kinder Bueno production facility in Illinois. This is the first time Kinder Bueno chocolate bars will be made in North America. The impact of corporate investment is showing up in the jobs data. US manufacturing employment now exceeds pre-Covid levels and is heading towards levels last seen before the financial crisis.

The ReShoring Initiative estimates that 350,000 jobs would be created this year from reshoring and foreign direct investment. That estimate may prove to be conservative as geopolitics, supply chain shrinkage, and a healthy dose of stimulus create stoke the need for companies to invest and expand in the US.But this is only part of the story. Every manufacturing job helps create a multitude of other jobs among suppliers and the public sector, thanks to the increased tax revenue. The Economic Policy Institute’s economic employment multipliers for durable and non-durable manufacturing is about 6 times. This indicates that 350,000 jobs in turn will create over 2mn indirect jobs. And that is the headwind that the Fed is fighting. The story may be inflation and prices at the pump or in grocery stores, but the battle is really about stimulus and unexpectedly strong corporate investment. More

Vladimir Putin has decided to skip this week’s meeting of G20 leaders in Bali. But the Russian president and his war against Ukraine, which has deeply divided the world’s biggest economies and sparked myriad global crises, will nonetheless dominate proceedings. The leaders of the majority of the world’s most powerful nations arrive in Indonesia ahead of Tuesday’s summit opening united by fears over runaway inflation, instability and food and energy shortages, but riven by disagreements over the war, its perpetrator and how the conflict should end.China and India, the world’s most populous countries and two of its six largest economies, have not condemned Putin and his annexation of swaths of eastern Ukraine. Meanwhile other G20 members such as Saudi Arabia, South Africa and Turkey have rebuffed western demands to punish Russia for its invasion.“This really is the first G20 to take place after the end of the post-cold war era. You know, this is a new world,” said Charles Kupchan, senior fellow at the Council on Foreign Relations, a New York-based think-tank. “We’re back in a global landscape in which there is militarised rivalry between the west and Russia. And that rivalry is now extending to China. And as a consequence, the ability of the G20 to function as a co-operative body is very much called into question.”Ahead of the official two-day summit, US president Joe Biden and Chinese president Xi Jinping will hold their first in-person meeting as leaders, seeking potential areas of co-operation to arrest a souring relationship that defines the east-west divide on a host of global issues.While Putin will not attend in person or join the discussions virtually, sending his foreign minister Sergei Lavrov, Russian officials remain part of the formal G20 negotiations, which have so far failed to find consensus.“There will be no agreement on language condemning Russia’s war in Ukraine,” said a senior German official of the G20, echoing downbeat assessments from other western delegations.In closed-door meetings to draft the summit communiqué, China has maintained its strong support for Russia, stymying efforts by western officials to include language condemning the war. Meetings of G20 finance, foreign and climate ministers this year all failed to produce a joint communiqué, and Russia and the US failed to agree on language for a joint statement at the conclusion of an east Asia summit in Cambodia on Sunday that was attended by 18 nations.Ukrainian president Volodymyr Zelenskyy is expected to address the G20 virtually © Sergei Supinsky/AFP/Getty ImagesWhat is most likely, people briefed on the G20 discussions said, is either a broad, non-specific declaration that this is “not the time for war”, or a 19- or 18-country joint statement. Language condemning nuclear escalation is likely to find agreement, the people said.Indonesian officials are still attempting to convince western leaders to take part in the traditional family photo, people involved in the talks said, amid widespread opposition to appearing alongside Lavrov.“I would not want to be the Indonesians in the sense that you really are hosting a meeting that is taking place against the backdrop of a level of ideological and geopolitical division that we haven’t seen since the Berlin Wall came down,” said Kupchan, who was special assistant to former US president Barack Obama. Seventeen leaders are expected to attend in person. Tuesday’s opening discussion will focus on the war in Ukraine, with Ukrainian president Volodymyr Zelenskyy set to address the gathering virtually, officials said. A second session will focus on global health, with a third on digital issues. Putin’s absence may increase the focus on Xi, with many fellow G20 members uneasy about his relationship with the Kremlin. The summit comes weeks after Xi tightened his grip on power at the Communist party congress, the US released a new national security strategy singling out the threat from China, and the EU resolved to toughen up its attitude towards Beijing.Asked about China’s role in the communiqué negotiations and whether its defence of Russia’s interests would make a consensus impossible, a French official said: “It’s too early to prejudge the results of the negotiations . . . We sincerely think there is space for discussions with China on this topic.”But analysts played down the possible success of sideline talks.“I have low expectations for tangible outcomes in the US-China meeting,” said Drew Thompson, a visiting senior research fellow at National University of Singapore’s Lee Kuan Yew School of Public Policy. “A meeting on the margins of a multilateral meeting is not the venue to resolve such strategic differences, so I do not think either head of state is coming to the table prepared to roll up their proverbial sleeves to work out compromises.”Putin’s absence may increase the focus on Chinese leader Xi Jinping © Andy Wong/APExperts said Japan is one of the few bilateral relationships where China wants to change the dynamic and improve ties, so Xi could be in a position to make offers or compromises. “At least with China the actors are familiar to countries such as Japan and South Korea — and especially for Indonesia, the host,” said a second western official. Western officials are also keenly aware that for many non-G7 states, the resulting economic challenges, food shortages and energy concerns are more important than the Ukraine conflict itself, and that they must be mindful of finding solutions to support these countries rather than just demanding they join condemnation of Moscow.“We want to avoid the formation of fronts within the G20. We want to be open for dialogue with countries even if they . . . don’t support the sanctions [against Moscow],” said the senior German official. “The G20 accounts for 75 per cent of global trade and 60 per cent of the world’s population. We can’t just leave these countries to Putin and his propaganda. We need to send a signal.”Western leaders will also use the summit to seek support for a proposed price cap on Russian oil exports, European officials said, while attempting to find solutions to food and fertiliser shortages caused by the invasion, scarcities that Moscow has blamed on western sanctions.“Climate change, nuclear proliferation, pandemics, global energy: You desperately need some kind of a forum that advances global governance,” said Kupchan. “And the G20 is the perfect place, but I fear it’s really going to be paralysed.”Additional reporting by Leila Abboud in Paris and Guy Chazan in Berlin More

Every country has its domestic politics, and its foreign policy. Sometimes they are in sync. Other times they are not. Either way, it can be hard for outsiders to understand messages crafted for those on the inside. In the US, the results of the midterm elections, while not the “red tsunami” of Trumpism that many had feared, will nonetheless make the divide between politics and real policy even harder for non-Americans to either fathom or stomach.Republicans appear to have won the House of Representatives, while Democrats have just taken the Senate (thankfully things won’t come down to a runoff in Georgia between the incumbent Democrat Raphael Warnock in Georgia and his opponent, Trump-backed former American football running-back Herschel Walker). But the unusually tight elections have put Democrats back in the 2024 presidential game in a way that will make it hard for them to cater to both domestic and foreign interests at once.Republicans will now turn even more of their vitriol on Joe Biden, aiming to make him look weak, criticising his handling of the economy, critiquing the chaos of his pullout from Afghanistan (which was, let’s be honest, never going to be easy for whichever president had to do it), and perhaps also refusing to sign off on more support for Ukraine. This will in turn upset European allies, who are already miffed about things like not being included in the US electric vehicle subsidies enjoyed by Canadians.To be clear, the European subsidy complaints are both unfair and ill-timed. The EU does plenty of its own subsidising of important industries. And in some cases it should; we need redundancy of supply at an international level for things like semiconductors, crucial commodities, clean technology and various other strategic goods and services. But German auto tariffs are far higher than those in America, and the US is currently running a major trade deficit with the EU and in particular with Germany. Whether or not you believe such deficits are important economically, they carry a large weight in US politics (particularly post-Donald Trump), and Republicans will pounce on Biden if he makes concessions here to the EU.That doesn’t mean that there is no room for better economic relations between the two blocks. Europe looks at things like “Buy America” (which is really “Buy America and 60 other nations with which the US has trade pacts”), and often sees Maga policies, not just domestic politics. In fact, the Biden White House deeply understands that it has to work with allies on things like climate change, energy, supply chain resiliency and so on. It should say this more clearly, and more often. But Europeans haven’t been very creative or aggressive about horse-trading, and have resisted coming on board with things like the US high-end chip ban, in large part because Germany is still hedging its bets between the US and China. In the US, however, decoupling is a completely bipartisan issue. On Tuesday, the US-China Economic and Security Review Commission, which is made up of members appointed by both minority and majority leaders in Congress, will put out its annual report. It is likely to be more hawkish about decoupling than in the past, with calls for more reviews of dual use technologies and export limitations, and a greater focus on cross-border capital flows. There will be little disagreement between the two parties on all this.While there are still some people in the White House who feel the US has done enough on decoupling, there is very little room politically for Democrats to take a softer stance on China. The midterms showed us once again how the party has lost some of its traditional base of working people. That failure has become an existential issue for labour leaders, who won’t shy away from speaking out against Biden if he looks soft on China or seems sympathetic to EU calls to back away from more domestic manufacturing.There’s nothing wrong with regional economic hubs, rather than long global supply chains. But I’m worried that Democrats will be pushed, unwillingly, into a more contentious rhetoric towards China. Look at the Ohio midterm election, which was won by Hillbilly Elegy author JD Vance, a Donald Trump supporter backed by Peter Thiel (who, like the former president, is hardly a man of the people). Tim Ryan, Vance’s Democratic opponent, had thoughtful policies about re-industrialisation and what might be done at home to support more localisation of jobs. But Vance had a more belligerent attitude. Some people want that fighting tone. There’s politics, and then there are policies. Republicans have plenty of slogans, but no real solutions to help address the big self-imposed wounds that are holding America back from improving its competitiveness in a decoupling world. These include a failure to reform and improve secondary and college education for the 21st century (all the tariffs in the world won’t help if we don’t have a better-trained labour force), and to undertake serious campaign finance reform. In the US system, unlike the Chinese one, companies all too often craft the rules of legislation to their own liking.Post-midterms, I hope Americans remember that competitiveness begins at home, and that allies remember that political rhetoric doesn’t always equate to reality. [email protected] 

Video: FT Live subscriber webinar on the US midterms More

As US export controls bite, Chinese manufacturers of equipment needed to make semiconductors are expected to benefit from a rush of domestic orders, though executives and analysts warn the boost could be shortlived.Since Washington introduced sweeping restrictions on October 7 to limit Chinese companies’ ability to obtain or manufacture advanced computer chips, Yangtze Memory Technology, China’s largest memory chip maker, has issued at least 20 tenders for a broad range of chipmaking equipment.“The current strategy is that if there is workable domestic semiconductor production equipment, even though [the suppliers] need help, we will buy from Chinese companies. If not, we shop from non-US vendors, mostly Japanese,” said a senior YMTC engineer.“I anticipate most of the orders would end up in the hands of domestic suppliers who would prioritise clients like us, but there are still quite a few pieces beyond their capability,” the person said.The company will instead replace US toolmakers such as KLA and Applied Materials with Japanese ones, including Hitachi and Tokyo Electron, in a sign of how homegrown suppliers still lag foreign rivals with their technology.To make matters worse, Chinese chipmakers’ loss of access to certain irreplaceable US-made tools has halted the majority of construction projects for production facilities that drive domestic equipment makers’ business.Chinese semiconductor equipment revenues tripled between 2018 and 2021, driven by domestic chipmakers’ aggressive expansion, according to research by Sanford C. Bernstein. But the investment group estimates a mere 15 per cent of equipment demand from Chinese chipmakers was covered by homegrown suppliers this year, far short of an ambitious government target of 30 per cent.The export controls will hold this crucial sector back even more, analysts said. “They may want to step up self-sufficiency in terms of chip manufacturing equipment in reaction to the export controls, but in fact, localisation will be slower as a result of the controls,” said Mark Li, semiconductor analyst at Sanford C. Bernstein in Hong Kong. “The biggest bottleneck is that their customers, because of lack of access to foreign equipment, will be unable to expand more.”Three people with direct knowledge of the situation said that while YMTC has not cancelled or postponed already placed equipment orders, the company’s plans to expand are suspended. ChangXin Memory Technologies, YMTC’s smaller rival, has also put some expansion plans on hold, according to one person familiar with the matter.Analysts at Jefferies predict this disruption to the capital spending plans of Chinese chipmakers, especially in the memory segment, will lead to a dramatic drop in demand for semiconductor production equipment over the next few years.YMTC and CXMT should still have enough equipment to meet their expansion plans next year, but “if they cannot access advanced equipment from the US and cannot find good enough alternatives from Japanese or European suppliers, they will probably have to stop expansion entirely”, Jefferies analyst Nick Cheng wrote in a research note. As a result, China’s total investment in chipmaking tools would drop from the analyst’s previously forecast $26bn to $18bn in 2024, and from $24bn to $16bn in 2025.That would rob Advanced Micro-Fabrication Equipment, one of China’s largest chip equipment makers, of a quarter of Jefferies’s forecast revenue for 2025. ACM Research, an AMEC rival, would lose nearly 20 per cent of projected revenue for that year, the note predicted.The chip companies did not respond to a request for official comment.Despite stockpiling efforts, several equipment companies could also be hit by the inability to procure foreign components for their products.“Only the assembly part of our products is completely based in China, while the rest requires foreign technology and components . . . just limitations on components can easily choke us,” said a senior engineer at AMEC.

In addition, the equipment makers are facing a talent drain as engineers seek higher-paying jobs in chip design houses and semiconductor manufacturers.“Chinese equipment companies should also worry about the stability of their existing R&D team as we have received quite a lot of inquiries from equipment engineers regarding switching to other sectors that have not been affected as much by the new sanctions,” said a Shanghai-based headhunter.In the face of the mounting challenges, the response from some equipment companies is to explore greater collaboration with their rivals.“The new sanctions are forcing companies like us to seek further co-operation with each other,” said an AMEC manager. “Executives from several companies, including ACMR, AMEC and others, are breaking walls and have had meetings on this.” More

WASHINGTON (Reuters) – The global economic outlook is even gloomier than projected last month, the International Monetary Fund said on Sunday, citing a steady worsening in purchasing manager surveys in recent months.It blamed the darker outlook on tightening monetary policy triggered by persistently high and broad-based inflation, weak growth momentum in China, and ongoing supply disruptions and food insecurity caused by Russia’s invasion of Ukraine.The global lender last month cut its global growth forecast for 2023 to 2.7% from a previous forecast of 2.9%. In a blog prepared for a summit of G20 leaders in Indonesia, the IMF said recent high-frequency indicators “confirm that the outlook is gloomier,” particularly in Europe.It said recent purchasing manager indices that gauge manufacturing and services activity signaled weakness in most Group of 20 major economies, with economic activity set to contract while inflation remained stubbornly high.”Readings for a growing share of G20 countries have fallen from expansionary territory earlier this year to levels that signal contraction,” the IMF said, adding that global fragmentation added to “a confluence of downside risks.””The challenges that the global economy is facing are immense and weakening economic indicators point to further challenges ahead,” the IMF said, adding that the current policy environment was “unusually uncertain.”A worsening energy crisis in Europe would severely harm growth and raise inflation, while prolonged high inflation could prompt larger-than-anticipated policy interest hikes and further tightening of global financial conditions.That in turn posed “increasing risks of a sovereign debt crisis for vulnerable economies,” the IMF said.Increasingly severe weather events would also harm growth across the globe, it said. More

From the evening of Oct. 31 through Thursday, more than 2,000 items generated sales exceeding 10 million yuan ($1.4 million) each on Tmall marketplace, more than half of them Chinese brands, according to data from the platform owned by e-commerce conglomerate Alibaba (NYSE:BABA) Group Holding Ltd.Alibaba said Singles Day sales were in line with last year, when gross merchandise value rose 8.5%, the lowest since the company started the shopping event in 2009. For the first time, Alibaba did not announce sales data this year.The shopping festival, which has expanded from a one-day online event into a lengthy spree, is seen as a barometer for consumer sentiment in the world’s second-biggest economy.Best-sellers this year included Chinese home appliance makers such as Haier, Midea and sportswear brand Anta, as well as international names such as Apple (NASDAQ:AAPL), L’Oreal and Nike (NYSE:NKE).Appliances outpaced other categories, while apparel remained the biggest drag, according to data by research firm YipitData on the pre-event period when shoppers can put down deposits on items.COVID CURBS SPUR HOME ENTERTAINMENT, CAMPINGDespite of the rise of new domestic brands in the past few years, foreign brands still enjoy huge reputational advantages in sectors where product quality or safety are top considerations, said Jacob Cooke, CEO of e-commerce consultancy WPIC Marketing + Technologies.Alibaba rival JD (NASDAQ:JD).com said that in the 28 hours from 8 p.m. on Oct. 31, Chinese brands accounted for 80% of the sales of the top 20 brands.Cooke said this did not reflect a domestic dominance of the entire market, though, as JD.com is especially strong in high-value consumer electronics such as computers and smartphones, where Chinese makers have long held sway in the local market.Repeated COVID lockdowns in cities across China drove consumers to spend on improving life quality at home.Chinese consumers are increasingly willing to pay for appliances with specific functions, said JD.com. Sales of televisions with gaming functions jumped more than 180% in the 28-hour Singles Day period that JD.com reports from a year earlier, while high-end floor washers surged 400%. Sales of TCL TVs, Dyson hair driers and Midea refrigerators doubled, JD.com said.People also wanted to entertain themselves: RTX gaming computer sales rose 75%, Microsoft (NASDAQ:MSFT) Xbox more than tripled and XR glasses spiked 530% on JD.com.Camping-related sales were strong as an outdoor trend continued, with sales of portable power stations soaring 10-fold on JD.com. ($1 = 7.1066 Chinese yuan renminbi) More

COLOMBO (Reuters) – Sri Lanka unveils a budget on Monday attempting to put the South Asian government’s finances in order, with reforms to advance a $2.9 global billion bailout from the island’s worst financial crisis since independence in 1948.President Ranil Wickremesinghe’s first full-year budget to parliament will include measures aimed at helping Sri Lanka restructure its debt, increase revenues and trim spending as it works on the bailout with the International Monetary Fund, analysts say.”This is a budget that is being presented at a time Sri Lanka is facing an unprecedented crisis,” said State Minister for Finance Ranjith Siyambalapitiya. “More than 70% of families are asking the government for support and the economy is estimated to shrink 8.3% this year,” he said in a statement. “This budget will present a political and economic way forward for the country.” The World Bank estimates Sri Lanka’s economy will contract by 9.2% this year and 4.2% in 2023.The nation of 22 million people plunged into crisis this year as a loss of tourism revenue from the COVID-19 pandemic compounded tax cuts and years of economic mismanagement, leading to a severe dollar drought.Unable to pay for critical imports, Sri Lanka struggled to buy essentials such as fuel, and the public faced soaring inflation, a rapidly depreciating currency and sharply shrinking growth. The government has proposed increasing the personal and corporate income tax rate to 30% from 24% and possibly changing tax brackets to boost revenue, despite criticism from companies and opposition parties.Spending cuts will likely to be tricky, given Sri Lanka’s large public workforce and high debt. More